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Cocoa and Chocolate: ‘Liquor of the Gods?’:

A Historical Review of the Cocoa and Chocolate Economy

Eline Poelmans a and Johan Swinnen b

 

a HUBrussel, CES and LCIS, KU LeuvenE-mail: eline.poelmans@kuleuven.be

b LICOS, KU LeuvenE-mail: jo.swinnen@kuleuven.be

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“Cocoa and Chocolate”: what?

• Today: many different products for many different consumers:

– cocoa beans,tablets, butter, paste, liquor and powder

– low calorie chocolates– chocolates for diabetics– luxury chocolates– chocolate drinks– Chocolate coatings– Cocoa used in cosmetics– Etc

• + can differ between countries and firms according to the production process and inputs used and consumer preferences

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I. A Historical Review

II. The Cocoa and Chocolate Production Chain in the 20th century

III. The Cocoa and Chocolate Consumption and changing Consumer Preferences in (1975-2012)

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I. A Historical Review

1. The Olmecs, Mayas, Toltecs and Aztecs (3000BC-1500 AC)

2. The Spanish Discoveries of the New World

3. Early Modern Times (1500-1800)

4. Age of Enlightenment (18th century)

5. Scientific Discoveries (19th-20th Centuries)

Throughout time there were changes in use, form, name, production method, place of production and/or consumption, consumer preferences, … of cocoa and chocolate

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1. The Olmecs, Mayas, Toltecs and Aztecs: A Liquor of the Gods (3000BC-1500 AC)

-The actual cocoa plant originated in South and Central America three millennia ago.

Mayas:

- They established the first actual known cocoa plantations

- Use: the cocoa drink was a hot drink for the elite (also for the common people?) for religious rituals for the gods (in association with human blood)

- Form: The cocoa drink was not one cocoa drink, but a bunch of different - probably solid, and sometimes complex - drinks, porridges and even powders. Different kinds of sweeteners and herbs were added (e.g. maize, chili, honey, and vanilla).

Toltecs:

- Use: cocoa became a commodity (i.e. money), used in the trade relations e.g. one slave was worth about one hundred cocoa beans Money “grew on trees”

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Aztecs:

- Use: cocoa was used as a cold drink used for the elite, warriors and long-distant merchants, religious ceremonies, and as a currency, and a medicine (having a.o. aphrodisiac properties) According to a myth - the god of air, Quetzalcoatl, would have left the‘quachahuatl’ tree to the human beings after he had been driven out of the Garden of Eden.

- Form: The cold cocoa drink was not one, but several chocolate beverages, with the addition of all kinds of herbs, sweeteners and flavours.

3000BC-1500 AC:

- Use and form: the cocoa bean became a monetary medium of exchange for trade as well as a fatty, dark concoction (warm or cold, for the elite, warriors, merchants and gods) and a medicine.

- Production method: The liquid brew was poured from one vessel into another from a height, in order to produce a good head on the brew.

- Place of production: South and Central America

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2. The Spanish Discoveries of the New World-Use: - They realized the value of the bean as currency in the local economy - But they disliked this bitter brew - This changed (through creolization, the taste of the Spanish women living there and the addition of sweeteners, e.g. sugar) cocoa as a currency a hot concoction, and a medicine ( the humoral theorem of disease and nutrition of Hippocrates and Galen) Not for religious ceremonies Spanish: catholic, monotheist.

- Form: - hot concoction (cf. Mayas) - tablets of ground cocoa: add hot water and sugar hot cocoa brew

much easier transportable to and distributable the Old world.

- Name: By end of 16th century cacao became chocolatl or chocolate.

- Production method: foam on top of the beverage by beating the hot drink with a molinillo, a large, wooden stick. -They didn’t want to get legal ownership of the plantations, but monopolize the laborers, the trade in beans and the introduced taxes.

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3. The Spread of consumption and production in Early Modern Times (1500-1800)

-Place of consumption + quantity consumed: consumption of drinkable chocolate spread: under the aristocracy and clergy as a hot drink

- Spain (royals)- Italy (powerful families, e.g. the Medici)- Portugal (Jesuits) - France (Louis XIV)- Netherlands (Amsterdam: thé European cocoa market end 17thC)- England (coffee houses)- England’s North American colonies (end of the 17thC)

- Name: In 1573, Linnaeus: a scientific name for the cacao species: Theobroma or ‘food of the gods’.

- Production method: the French invented the chocolatière, to stir and beat the heavy liquid to convert the chocolate brew into a tasty drink

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- Place of production: Worldwide new cultivation sites of beans to fulfil the increasing demand

why? - Treaty of Tordesillas of 1496:

- Portugal got the territories to the east- Spain got the territories to the west

Spanish crown established a trade monopoly in overseas territories

- European demand for the brew increased (an elite drink) - Mesoamerican demand for the brew increased (a drink for all:creolisation) demand for cocoa beans doubled

- Spanish tried to increase production in the original or new sites. Indians died D > S

- Cocoa prices increased - New production regions (Ecuador, Venezuela and Brazil) (African slaves). - Dutch and English pirates took over the spanish trade. - ° New varieties of cocoa : Criollo Forastero Trinitario - Cocoa production spread to the West Indies, Africa and Asia

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4. The Age of Enlightenment (18th century): Getting rid of the Drink of the Clergy?

-In that period were chocolate, coffee and alcohol 3 different beverages for 3 different parts of society:

- chocolate = southern, catholic and aristocratic- coffee = northern, protestant and middle class- alcohol = the beverage for the proletariat

- In the age of Enlightenment the cocoa drink of the clergy and elite became rather unpopular: 2 reasons:

The French Revolution and the Napoleonic reign (1804-1815) put an end to the power of the church and the aristocracy in France

The Enlightenment questioned the basis of society and the very place of the church and nobility in all this. - The adherents of the Enlightenment preferred coffee over chocolate (coffee houses in England). - In spain and Italy the popularity of chocolate had a longer life, but there as well its popularity decreased.

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5. Scientific Discoveries in the 19th-20th Centuries: A Brew - and Bar? - for the Common People

-during 19th century modern medicine replaced the Galenic system chocolate could be eaten by anyone, at any time at any quantity = tempting, because very tasty !

per capita consumption of chocolate increased enormously

- history of cocoa and chocolate in the previous centuries: the catholic southern Europe played a role.

- discoveries in cocoa and chocolate producing methods in 19th and 20th centuries:

in protestant northern Europe and the US led to:

- eatable chocolate - drinkable and solid chocolate available for the common people - made the manufacture on a larger scale possible

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-The Netherlands: Coenraad Van Houten- The cocoa press: divide cocoa mass into powder and butter

cocoa fat: to make a new product: plain eatable chocolate cocoa powder: for several applications (e.g. chocolate drinks)

- The Dutching process: the cocoa cake was treated with alkaline to improve its miscibility chocolate was darker in color, milder in taste and easier to digest

The way was paved for large quantities of chocolate, both in powered and solid form

- England:- Fry family: mixed cocoa powder, sugar and butter (instead of water) to

produce a paste to cast into a mold to make bars became very popular price of butter increased immensely

drinkable chocolate for the masses eatable, solid chocolate for the rich

- Cadbury started to make its own cocoa powder, as a flavoring ingredient for a diverse variety of products, such as biscuits, cake and ice-cream

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-Switzerland: - Cailler and Suchard: mélangeur - Nestlé and Peter: milk chocolate - Lindt: conching procedure: made the eating chocolate more smooth and better tasting and less gritty (fondant chocolate) - Tobler: tempering method: destroyed the crystal structure to become smoothly

- USA: Milton Hershey - established a chocolate town to produce vast amounts of milk chocolate (milk from his own dairy farms and sugar from his Cuban factory)

All these inventions, led to eatable chocolate, drinkable and solid chocolate available for all and made the manufacture of on a larger scale possible

By 1900: the 3 processes of modern chocolate manufacturing that result in three different products were known:

- cocoa powder- dark chocolate- milk chocolate

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II: The Cocoa and Chocolate Production Chain in the 20th century

1. The Production of Cocoa Beans

2. The Production of the Intermediate Products and Industrial Chocolate

3. The Production of Final Chocolate Products

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II: The Cocoa and Chocolate Production Chain in the 20th century

Figure: The Cocoa and Chocolate Production Chain

Source: Adapted from Heijbroek and Konijn (1995).

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1.) The Production of Cocoa Beans

Several factors influenced the production of cocoa beans throughout time:

- price of cocoa

- prices of inputs (e.g. labour, land, pesticides and fertilizers)

- developments in production technology (e.g. improved crops or pesticides)

- alternative crops that could grow on the same soil and under the same conditions, such as coffee, palm oil, or rubber are competitors

- involvement of governments

- etc

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Figure: World Production of Cocoa Beans (1895-2010) (in 1000 metric tons)

Source: Mitchell (2007a, 2007b and 2007c) and Faostat (2012)

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Table 1: Total World Production of Cocoa Beans by most important Places of Origin(1900-2010), in percentage

Source: Mitchell (2007a, 2007b and 2007c); Faostat (2012) and Boudewijn (1959)

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Figure 4: Production of Cocoa Beans in Central America (1895-2010) (in 1000 metric tons)

Source: Mitchell (2007a, 2007b and 2007c); Faostat (2012) and Boudewijn (1959)

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Figure 5: Production of Cocoa Beans in South America (1895-2010) (in 1000 metric tons)

Source: Mitchell (2007a, 2007b and 2007c); Faostat (2012) and Boudewijn (1959)

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Figure 6: Production of Cocoa Beans in Africa (1895-2010) (in 1000 metric tons)

Source: Mitchell (2007a, 2007b and 2007c); Faostat (2012) and Boudewijn (1959)

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Figure 7: Production of Cocoa Beans in Asia & Oceania (1895-2010) (in 1000 metric tons)

Source: Mitchell (2007a, 2007b and 2007c); Faostat (2012) and Boudewijn (1959)

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In 2010, cocoa production was highly concentrated in 3 separate geographical regions:

- Africa (61 %)- Asia (22 %)- South America (10 %).

= the developing world (largest producers = Côte d’Ivoire, Indonesia and Ghana )

Table 2: The largest Cocoa producing Countries in 2010 (in 1000 ton and in % of total world production)

Source: Faostat (2012)

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2.) The Production of the Intermediate Products and Industrial Chocolate

- Trade is very important for the cocoa industry: almost all cocoa bean are produced in the 3 above-mentioned regions only 30 to 40 % is processed locally prior to export 60 to 70 % is exported and processed into intermediate and final

products in the developed world.

Table: 2008/09 world net cocoa exports in %

Total net world cocoa exports = net exports of cocoa plus net exports of cocoa products (butter, paste/liquor, powder and cake) converted to beans equivalent using conversion factors (cocoa butter 1.33; cocoa paste/liquor 1.5; cocoa powder and cake 1.18). Source: (ICCO 2010)

Table: 2008/09 world net cocoa Imports in %

Total net world cocoa imports = = net imports of cocoa plus net imports of cocoa products (butter, paste/liquor, powder and cake) converted to beans equivalent using conversion factors (cocoa butter 1.33; cocoa paste/liquor 1.5; cocoa powder and cake 1.18).Source: (ICCO 2010)

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Table 3: Grindings in Different Regions as percentage of the world total (1975/76-2010/11)

/ = not available

Source: Calculated with data from Heijbroek and Konijn (1995); ICCO (2010) and ICCO (2012).

The cocoa processing industry mainly and takes place in the developed world, in cocoa importing countries, near the major centers of cocoa consumption.

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Figure 8: Structure of the Cocoa Business: The Share of Consumer Spending for the Parties involved

Note: The added value of the processors is included under the chocolate industrySource: Adapted from Heijbroek and Konijn (1995).

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The share of the cocoa producing countries in total world grindings has risen from 30 % in the 1970s to 40 % today.

Table 4: Cocoa Products as percentage of all Cocoa Exports (by value)

Source: ICCO (2010)

- Today The Netherlands is the largest converter, followed by Côte d’Ivoire, the US, Germany, Malaysia and Brazil.

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3.) The Production of Final Chocolate Products

Several factors influenced the production of final chocolate products throughout time:

- the price of the inputs

- competition from similar products

- the scale of production

- availability of substitutes (e.g. for cocoa butter)

- consumer preferences

- Etc.

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Table 5: Global Chocolate Confectionery Market Segmentation by Region (% share by value in 2003)

Source: Datamonitor (2004a, 2004b, 2004c and 2004d)

Table 6: European Chocolate Confectionery Market Segmentation by Country (% share by value in 2003)

Source: Datamonitor (2004b)

By country the US (32%) is the largest chocolate confectioner, followed

by the UK is the (29 %), Germany (15 %) and France (12 %).

The final stage, the actual production of finished chocolate products, takes also mostly place in the developed world

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Table 7: The Top Ten Global Confectionery Companies that Manufacture Some Form of Chocolate by net confectionery sales value in 2011

Source: ICCO website: Reference: Candy Industry, January 2012

From the largest chocolate manufacturers by net confectionery sales three are located in North America, four in Europe, two in Asia and one in South America.

None in Africa!

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Table 8: Global Chocolate Confectionery Market Segmentation by Product Type (% share by value in 2003)

Source: Datamonitor (2004a, 2004b, 2004c and 2004d)

Table 9: Regional Chocolate Confectionery Market Segmentation by Product Type (% share by value in that region in 2003)

Source: Datamonitor (2004a, 2004b, 2004c and 2004d)

e.g. licenced goods or theme products,cf. infra

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III. The Cocoa and Chocolate Consumption and Changing Consumer Preferences

(1975-2012)

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Several factors influenced the consumption of cocoa beans and/or chocolate products throughout time:

- price of cocoa beans (price elasticity of demand is relatively low)- income (income elasticity of demand is higher) - taste and preference differences- climate (people in cooler climates consume more chocolate)- availability of (vegetable) substitutes

However, availability is not always the issue.

In the US and in most Western European countries strict guidelines on how much real cocoa butter a chocolate product has to contain. exceptions: e.g. the UK, Switzerland: an up to 5% rule European directive of 2000 (i.e. European Directive 2000/36/EC)

- other, similar, available products on the market

e.g. tea and coffee: competitor for cocoa powder e.g. other sugar confectionery: competitor for eatable chocolate

- changing population structure

increasing world population increase in cocoa consumption, more older people in the West (old people eat more tablets and bonbons and younger people eat more chocolate bars)

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- An increase in grindings in country X does not necessarily means an increase in consumption in country X because of large international trade flows in cocoa as well as finalized chocolate products.

the ‘apparent domestic cocoa consumption’ is used= the amount of cocoa beans used for the confectionery of the final chocolate goods that are actually consumed in a country or region

In 2008/09 apparent domestic consumption of cocoa went up for the world as a whole and for all regions

Table 10: Apparent Domestic Consumption of Cocoa by Country (in % of world total)

Calculated as grindings of cocoa beans plus net imports of cocoa products and of chocolate and chocolate products in bean equivalent Source: ICCO (2010)

small % decrease for Europe and the Americas small % increase for Africa and Asia & Oceania

In 2008/09 the countries consuming the most cocoa were the US, Germany, the UK and France.

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In 2008/09 there was a decline in per caput consumption of cocoa in all regions due to a lower consumer spending on chocolates because of the crisis and higher cocoa prices.

- The countries consuming the most cocoa per capita in 2008/09 were Switzerland, Belgium and Ireland.

The period 2000-2009 showed an increase of 11 % in the consumption of all chocolate confectionery in 19 selected countries.

- In 2008 the largest chocolate consuming countries were the US, Germany, the UK and Brazil

- Looking at per caput chocolate confectionery consumption Germany was first, followed by Switzerland and the UK. The US is only 14th.

- Tastes in chocolate vary from region to region- European taste: plain chocolate- US + UK taste: milk chocolate- Asian taste: depends on the sub-region

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- The last decade some changing tastes and preferences invention of new chocolate products, fabricated to meet these

new demands:

- premium chocolates: dark, organic and single-origin chocolate bars

- more socially conscious products: fair trade

- novelties: e.g. licensed goods: - linked to a comic book super hero, a TV show, a TV star, i.e.

someone or something people want to identify with- e.g. linked to Star Wars, Mario Bros and the Disney Princesses

- novelties: e.g. theme products: - want to attract customers by something they know, often from

the past. - e.g. the retro theme: vintage packages, or even the

reintroduction of ‘old’ products from our childhood.

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Thank you very much for your attention !

Any questions?